Much Higher Surety Bond Guarantee Ceilings

A major revision in the U.S. Small Business Administration’s Surety Bond Guarantee (SBG) Program more than triples the eligible contract amount, from $2 million to $6.5 million, the Agency will guarantee on surety bonds for both public and private contracts.

What does this mean for small businesses trying to grow?

A Los Angeles subcontractor for example, was looking to take on bigger jobs and grow its business, but needed a much larger bond to bid on and get a contract that was larger than past work it had performed.

As a direct result of higher SBA guaranteed bond limits, companies like that California contractor can now experience continued growth in bonding capacity, employ more employees and improve revenue streams. And with that kind of growth and resulting experience on bigger jobs, such companies can bid on more federal construction contracts, build an even stronger management team, and set strategic plans for bigger contracts and expansion into larger markets.

Contractors purchase surety bonds to guarantee that they will complete contracts. If the contractor fails to complete the contracted work, the surety bond is used to pay for completion. The SBA offers a guarantee of up to 90% on three types of surety bonds: bid bonds, which ensure that if a bidder wins a procurement competition the bidder will sign the contract; performance bonds, which ensure the contractor will complete the work as contracted; and payment bonds, which ensure that the contractor will pay its supplier and subcontractors.

These increases in bond capacity result from provisions in the Fiscal Year 2013 National Defense Authorization Act and are expected to bolster participation by surety bond agents and brokers and their surety companies in SBA’s SBG Program.

The changes also allow SBA to guarantee bonds for government contracts valued at up to $10 million if a contracting officer of a federal agency certifies that the guarantee is necessary for the small business to obtain bonding, and it is in the best interests of the government.

SBA partners with the surety industry to help small businesses that would otherwise be unable to obtain bonding in the traditional commercial marketplace; and now, with the increased capacity, that public/private cooperation helps these small businesses grow as well.

If your small business needs SBA assistance in locating a participating surety company or agent, and completing application forms, simply go online to http://www.sba.gov/osg/, or call 1-800-U-ASK-SBA.

Frank J. Lalumiere is Director of the Surety Bond Guarantee Program for the U.S. Small Business Administration